Faceless assessment of tax returns has been a major reform in recent years. Tax experts predict that Budget 2021 is expected to sharpen faceless assessment further. Increasingly, taxpayers will interact with income tax officials over computers and emails, instead of visiting income tax offices personally.
In simple words, faceless assessment means that if your tax return is picked up for additional examination and notices have been issued to you, you do not have to rush to the income tax offices. Instead, you would get an email informing you the additional details the department wants. You need to fill up a form that you get in your email, attach supporting documents and send it back to them. “Every document would have an identification number with time and date stamp, so the time limits need to be followed,” says Sudhir Kaushik, co-founder and CEO of TaxSpanner.com. Faceless appeals would, therefore, be time bound.
But dealing with computers isn’t all that easy as it sounds.
No chance to explain in person
If your response needs explaining, then there is little you could do via emails. “Explaining a particular issue to anyone through technological interface or only through documents is a challenge. You need to pull out bills and documents of the past 6-7 years, recall why you made a particular transaction and respond within a particular time limit,” says Rishabh Parekh, founder and Chief Gardener of Money Plant Consultancy.
And given that your returns have been picked up for scrutiny based on the information the government has already procured, the onus is on you – the taxpayer – to now fish out your bills or supporting documents to prove your case. Karan Batra, founder and CEO of Chartered Club says, “Government has information on the spends through business owners based on the purchases and sales.”
The good part is that income-tax return forms will now increasingly come pre-filled. In future, even the donations that you make to registered charities will now be captured by such pre-filled income-tax return forms.
The reality is that “in the past, just about 5-10 percent of the cases were picked up for scrutiny. Now, with tax-monitoring getting increasingly computerised, more returns where income-to-taxes paid mismatches are found, would be picked up,” says Batra. PwC in its report titled Faceless interface: A paradigm shift, adds that inquiries would also get increasingly specific.
However, not being able to express your side of the story would be a challenge. When interacting with a tax official in person, you could approach her senior if you are not happy with the way your scrutiny is assessed. In faceless assessment, you can only appeal through an email (feedback.notice.neac@incometax.gov.in) that goes to the National e-Assessment Centre. The National Faceless Appeal Centre (NFAC) – which has been taking care of all appeals since 25 September 2020 – is the equivalent of Central Processing Centre that takes care of processing tax returns.
Big brother is watching your expenses
It’s not just about collecting more taxes. Faceless assessment now stems from the Government’s idea of building its intelligence and capturing details of individuals who are disclosing inadequate income and ensuring that they pay the correct tax amount.
The idea is to map your expenses with your income. For instance, tax deducted at source (TDS) on your dividends mean that you would have bought shares and mutual funds. “Then again, if you disclose dividends from foreign shares, then have you declared your foreign assets in the income tax returns” asks Kaushik.
If you transact with a bank in excess of Rs 25 lakh (Rs 50 lakh for current accounts), the same gets reported by the bank against your permanent account number (PAN). Batra rightly points out that the annual tax statement (Form 26 AS) that previously carried details of individual tax deductions at source through banks, mutual funds and salary, now has been mapped with the goods and services tax data. “So, for a business owner, the turnover is being assessed against the GST records and being mapped together with the individual income records.”
Can human error still derail automation?
Yes, it can. To make faceless assessment a success, the government would need to ensure data-mapping exercise is complete and timely. For instance, any firm that deducts TDS, before it makes the payment to you, is still required to deposit it with the Government, file a TDS return with the PAN of the deductee and provide a TDS certificate to the deductee. Any delay in this process creates a data mismatch; the government systems could take it that you haven’t paid your tax.
Batra suggests that taxpayers should be allowed to raise a dispute through the tax-filing portal instead of chasing the company that deducted taxes.
What should taxpayers do?
Remember: you do not need to worry just because you get a notice, especially if you have been diligent in paying your taxes. “Imagine a situation where you are driving past a major junction and you have your seat belt on, the insurance, PUC certification, registration and other car papers in place. Yet the traffic policeman would randomly stop you for an enquiry. You get a go-ahead after he checks all the documents,” says Parekh.
But fake data can come to haunt you increasingly, in coming times. Kaushik sees times ahead when an intelligent use of this data collected can have a bearing on your personal finances. For instance, no loans for you if your income-tax queries are pending. Or no foreign air tickets for you if you failed to disclose an expenditure of more than Rs 2 lakh in your tax returns, where mandated.